GE's People Power Conaty Made Jack Welch a Believer

Few people would dispute General Electric’s commitment to workforce development. The Fairfield, Connecticut-based company is renowned —some would say infamous—for ranking the performance of its 325,000 employees and getting rid of the bottom 10 percent.

However, former CEO Jack Welch once had doubts about HR. Welch used to refer to HR as the "health and happiness crowd," says Bill Conaty, a 40-year veteran of GE and the company’s senior vice president/human resources advisor.

Welch’s notion of HR started to change in the early 1990s when he began interacting with Conaty, who was head of HR for GE’s aircraft engine business. During that time, Conaty was dealing with the fallout of the Israeli Air Force purchasing scandal, during which GE aircraft engine division managers were charged with diverting U.S. aid for jet engine purchases into private accounts.

Conaty not only stood up to Welch, explaining that not everyone should be fired, but he also argued that there should be different levels of discipline, and he carried out the plan.

"The only good thing that came out of [that crisis] was that I found Bill Conaty," Welch wrote in his book Jack: Straight From the Gut (Warner Books, 2001).

Welch named Conaty senior vice president of corporate human resources at GE in 1993 and gave him the toughest job an HR executive could have: finding Welch’s successor.

Through working with Welch on an intense succession planning program that yielded GE’s current CEO, Jeff Immelt, to revamping the company’s HR leadership program, Conaty has proved to Welch and to the world that HR is an important business partner. He plans to retire in December.

Today, Welch can be found on the conference circuit singing HR’s praises. "The HR person has to be the most important partner to the CEO," he said at SuccessFactors’ user conference in New York last month.

But not all is well in HR at GE. On May 31, Lorene Schaeffer, general counsel for GE Transportation, filed a $500 million gender discrimination lawsuit against the company. The suit names a number of GE execs, including Immelt and John Lynch, Conaty’s successor.

Calls about the suit were referred to spokeswoman Archana Handa, who said, "We strongly deny the allegations made by Ms. Schaefer."

In an interview on May 30, the day before the suit was filed, Conaty spoke with Workforce Management New York bureau chief Jessica Marquez at GE’s offices in New York and discussed his time at the company and the challenges facing HR today.

Workforce Management: Ranking is a huge part of GE’s culture. Why is it so important? Bill Conaty: It’s not so much rankings; it’s differentiation. We believe that we need to recognize and reward our very best performers and we need to let our least effective performers know where they stand and give them a chance to improve or look for other opportunities outside of GE.

It’s much more about having honesty, candor and open communications within GE than it is about formal rankings. You look at the people at some of the top jobs at GE and they have gotten there because of performance, not because of where they went to school, not how many graduate degrees they have, but because of the impact they made on their jobs and the performance they delivered.

To me, the day we lose that differentiation is the day we are going to lose our edge at this company. It isn’t about putting a stamp on someone’s forehead.

WM: Some say that GE’s stance on getting rid of the bottom 10 percent performers is too rigid and old school. What’s your response? Conaty: I don’t think it’s old school at all. I think it’s smart business.

I do think that you can’t substitute a number percentage for sound judgment and common sense. So if you have an organization, it could be 5 percent or it could be 15 percent. But in an organization like GE, with 325,000 employees, it’s probably going to average out to about 10 percent.

So we have become a lot less anal about what that number is. But we do want our leaders focusing on making sure that we truly differentiate and making sure that the person who is really breaking their neck for you and really delivering results gets a much better raise than the person who is just treading water.

We have had a lot of people join us in midcareer level because of the fact that this is a place where they can really strut their stuff and GE will recognize them.

It’s like anything we do at this company in that we swing the pendulum way out. With 325,000 employees, you can’t send out subtle messages. When we did Six Sigma, we went out with a message that said if you are not at least green-belt-certified, then you are not going to get a raise. That’s pretty dramatic, and that of course gets people green-belt-certified. We are not doing that any longer; we have the pendulum out there and it always swings back to the center. We have found that when we forced the behavior initially, people were doing stupid projects to get certified. That’s what you have to do initially to get the process you want.

I would say the same thing with 10 percent. This is an evolution and it happens over time. It’s just trying to get to the concept of differentiation and making sure that you know who your best are, but also that you know who the worst are and that you work both ends of that spectrum.

Most companies take care of their best and brightest, but then they ignore the ones who are least effective and get someone else to do their jobs. When you do that you end up with a group of totally disenfranchised employees. They are a cancer in the organization and they act as de-motivators for all of those young hot shots you hire, who then say, "Gee, I don’t want to be that character in 30 years." We would rather have them see people who are fired up after 30 years with the company, and that’s what they see.

WM: GE is renowned for the fact that its executives tend to go out and take leadership positions at other major companies. What do you do to try to keep these folks? Conaty: We don’t keep them all. And some of the ones who have done amazing things are those that have gone off on their own, and some of them we tapped on the shoulder and said, "Why don’t you go do something amazing somewhere else?" They weren’t all roaring success stories at GE.

In general, over the period of time that I have been on this job, we have been able to retain 95 to 97 percent of our top 600 senior executives and officers year after year after year. In fact, up until the last couple of years, it’s been 97 percent and will drop to 95 percent in a tough year. But that’s a little bit of the private equity pull lately. We haven’t been losing top talent to other Fortune 500 companies, but we have lost a few to private equity.

WM: How have you maintained a retention rate of 95 percent to 97 percent for your top executives? Conaty: By constant, candid communication with these individuals and giving them bigger and better development opportunities. We always have some form of a career ladder of progression still available for those running GE businesses.

Probably 85 to 90 percent of our top 600 leaders get promoted from within. That means when the top jobs open up, the internal people know that they have a shot at it. At most of these companies, whether they are Fortune 50 or Fortune 10, the top job usually gets filled by an outsider, and to me that is a real demoralizing event for the people inside the company.

WM: What’s your advice to HR managers who are frustrated that they don’t have a seat at the table? Conaty: I would say that if HR doesn’t have a seat at the table, it means that either they aren’t very good, or that they are in a business that doesn’t really care to have HR at the table. Neither of those are positive things. You can be damn good, and if the CEO at that company doesn’t want HR to be a player, you won’t be.

If it’s just whining that you want a seat at the table without really showing that you are an impact player and that you understand the business as well as the people equation, then that’s on you.

WM: A recent Deloitte Touche Tohmatsu study shows that more than half of business leaders don’t have a chief HR officer or comparable executive dedicated to people issues. Why is it so hard for HR to be seen as a strategic business function? Conaty: HR still has a reputation that it needs to address. In a lot of organizations you see HR report to the chief administrative officer. Welch used to call HR the "health and happiness crowd." So we have gone from health and happiness to trusted business partners. But it’s still viewed in a lot of companies as a backwater operation.

WM: What are your thoughts about companies putting executives with no HR experience into the head of HR role? Conaty: I think there is a skill set that comes from HR that not everyone can do. I think there is a feeling, and Jack Welch had that feeling, by the way, that anybody can do HR. I would say that if you have a highly unique situation where there is someone with a strong skills base and interpersonal skills and the ability to be an advocate, it could work. But for the most part, people feel very uncomfortable out of their realm, and people with a strong operations background usually feel that HR has too much judgment and mystery involved with it. They can’t put a slide rule on it.

It also demoralizes the HR organization because they see that not only does the job go to someone outside of their department, but it indicates that the company doesn’t think that anyone inside the department can do the job.

WM: What about making the top HR position a rotation seat for candidates on track to succeed the CEO? Conaty: Depending in the size of the company, I think you can do it. At least in that case it makes HR a pretty important part of the organization.

WM: Was there ever an area of HR philosophy where you and Jack Welch didn’t agree? Conaty: Yeah, and we ended up agreeing on it. We have a program called the Human Resource Leadership Program and we have about 100 folks going through it now. When I took the job, I was never totally enamored with the program. Welch felt that the finance organization had the greatest training programs in the company and that the best and brightest from that go work in the corporate audit staff. I think his feeling was that a lot of the people in the HR program were more social workers than business partners.

So what we did with the HR Leadership Program was we homed in on the caliber of talent that we were bringing in. We made sure that for the most part we did graduate school folks who either had a master’s degree in industrial labor relations or an MBA but also had worked for a period of time between undergraduate and graduate programs. We started really raising the bar on the caliber of individuals that we were bringing into the program.

The other thing I did that really jelled with Jack’s thoughts was that I made it mandatory for HR managers who entered the program to go onto the corporate audit staff for eight months. And Welch didn’t think they could make it on the corporate audit staff. But they not only made it, many of them excelled at it and a couple of them decided to stay, which caused a lot of heartburn for senior HR leaders who were sponsoring these individuals. They didn’t want to lose people, but I said, "This is the best thing that ever happened to us," because it showed that our people not only could compete on the audit staff, but that they could excel.